Gov’t revokes 121 tax incentives decrees under Act 22
The Department of Economic Development and Commerce (DDEC, in Spanish) has revoked 121 tax incentive decrees to Act 22 (now Act 60) beneficiaries who failed to submit annual reports to the agency, as the law required.
Carlos Fontán, director of the DDEC’s office of business incentives in Puerto Rico, said in April, the agency began the first audit of several laws that provide tax incentives and other benefits to foreign and local investors who establish operations on the island.
Act 22, known as the Puerto Rico Investors Act and that is now under Act 60 of the Puerto Rico Incentives Code, provides tax exemptions and credits to eligible businesses for relocating to the island. Mandate beneficiaries are required to among other things, submit an annual report showing their financial activity.
“If they don’t file those annual reports, they’re in breach of the decree and that is grounds for us to revoke their decree,” Fontán said, confirming that entities who lose their decrees may appeal under
As part of the initial audit, the DDEC sent out 1,086 letters to some 3,343 Act 22 beneficiaries about a possible noncompliance with the condition. Earlier this year, the agency had revoked 29 decrees through an initial investigation, Fontán said.
“With this oversight effort, we’re confirming who’s in compliance. This is not to be seen as a witch hunt, because we’re carrying out our administrative duties,” he said, confirming this is the first time tax and incentives decrees have been audited since the laws went into effect in 2012 — a task that is supposed to happen every two years.
“We’ve started with Act 22, and we’ll move ahead with Acts 20, Act 73 and the different incentives programs,” he said, adding that the full results of the comprehensive audit should be ready by the first quarter of 2022.
To revoke a decree, the DDEC works jointly with the Puerto Rico Treasury Department, “so it’s basically an intelligence effort that we’re carrying out,” said Fontán.
To date, the government has approved some 8,000 decrees offering different benefits to different entities, including young entrepreneurs, manufacturing operations, green energy. As of Nov. 30, 2,083 decrees have been approved to individual investors under Act 60, he said.
Citing external research, Fontán said Act 22 has generated 4,400 direct jobs that have contributed more than $700 million to Puerto Rico’s economy. The beneficiaries have reportedly invested $1.3 billion in real estate, which has resulted in property tax payments.
“They’ve also had to pay taxes on salaries and sales and use tax,” he said.
The agency’s audit will now move to a second phase in which it will analyze decrees offered through the different programs, confirming specific conditions such as proof of residency — certain beneficiaries must live on the island at least six months of the year — donations to nonprofits and other requirements.
For the job, the DDEC hired an outside firm, Eco Val, which has a team of about 10 people assigned to the audit. A new round of decree cancellations could happen based on the full audit results, he said.
The local government’s review joins another currently underway at the Internal Revenue Service, which is probing whether individuals who benefited from Act 22, failed to meet federal requirements and “may be excluding income subject to US tax on a filed US income tax return or failing to file and report income subject to US tax.” That campaign is listed as active on the agency’s website.